Overexpansion caused Crumbs’ cupcake to crumble: Experts

Overexpansion resulted in undercooked sales at cupcake chain Crumbs Bake Shop, causing the New York City–based retailer to abruptly shutter all of its 50 stores, most of which were in the Northeast. It had already shuttered 15 since March 19.

Crumbs, which sold large cupcakes with extravagant flavors such as red velvet cheesecake and caramel macchiato, mostly operated in streetfront locations in Manhattan and other parts of the New York City. The chain also operated units in some well-known malls throughout the Northeast, such as Cherry Hill [N.J.] Mall, outside of Philadelphia; Natick [Mass.] Mall, on the outskirts of Boston; and Tysons Corner Center, in McLean, Va. So the chain, though not very large, touched several types of retail real estate.

To James Dion, president of Chicago-based retail consulting firm Dionco Inc., the Crumbs closure is not a big surprise. In fact, he told SCT that he thought it was going to happen about a year ago.

Crumbs, founded in 2003, has had financial problems of late. After going public in 2011, it was soon plagued by lagging sales. It reported a fourth-quarter loss of $5.8 million on March 19, and the company’s shares were delisted from the Nasdaq on June 26.

“They expanded too quickly with a concept that would never be proven,” Dion explained. “How many yogurt chains have we seen come and go? How many bagel chains have we seen come and go?”

He also pointed out that paying $4 to $6 for a cupcake was “out of most peoples’ reach today” and the market could merely support a handful of these stores.

Bill Rose, a Marcus & Millichap vice president who is also national director of the firm’s national retail group, agreed that overexpansion is what led to Crumbs’ demise. “Crumbs crumbled because it expanded way too fast,” he told SCT.

However, Rose claimed that the chain’s concept wasn’t the problem. Instead, he blamed its expansion into malls from the urban-street locations of its roots, saying that most mall shoppers are after fashion and soft goods, not haute cupcakes.

He pointed to Los Angeles-based Sprinkles Cupcakes as a success story. It has only 16 locations after measured growth and is mainly in open-air settings.

“It’s proven over time that these specialty type concepts survive in the right market,” Rose stressed. “You can’t say Crumbs failed because the economy doesn’t support the cupcake craze.”

For more on Crumbs, read our original story on the company from 2011 here.